Lawmakers find little to cheer about in report that Maine’s sales tax burden is nation’s third lowest

Posted Aug. 30, 2013, at 5:34 a.m.

AUGUSTA, Maine — A new study by a national think tank says Maine’s sales tax is the third-lowest in the country. But legislators — even those known to be proponents of lower taxes — said that’s not necessarily good news.

The Tax Foundation, which describes itself as a nonpartisan research organization that has monitored fiscal policy at all levels of government since 1937, found that Maine’s sales tax rate of 5 percent is third-lowest among states that have sales taxes at all. The study reflects Maine’s current tax rate, which is scheduled to increase to 5.5 percent on Oct. 1 due to a biennial budget bill enacted in June that includes temporary increases to the sales, meals and lodging taxes.

Even at 5.5 percent, Maine’s sales tax rate would be fifth-lowest in the country and the state is known for its relatively narrow list of goods and services that are subject to the sales tax at all.

Lawmakers in Maine have long tried to reform Maine’s tax code in a way that would lower income and property taxes, which many experts say are key to spurring economic development. Those reform efforts — of which there have been five, according to a BDN analysis published in May — have largely failed because they included provisions to raise or expand the sales tax, which reliably triggers strong opposition from the sectors involved.

Sen. Roger Katz, R-Augusta, was one of the members of an 11-person coalition that championed a sweeping tax reform proposal that failed in the Legislature earlier this year.

“Any time we attempt to change the tax code we hear from everyone who thinks their ox is being gored,” said Katz. “The whole point of our reform proposal was to lower the overall tax on Maine people.”

Katz and others argue that Maine’s low sales tax collections put too much pressure on income and property taxes, the latter of which they view as regressive because it doesn’t account for a property owner’s ability to pay.

“We all have control over what we pay in sales taxes because of what we decide to buy,” said Katz. “If an increase and a broadening of sales taxes buys you a reduction in the income and property taxes, I think that makes sense. Starting from scratch, there’s no one who would design the current tax structure we have.”

Sen. Doug Thomas, R-Ripley, a member of the Legislature’s Taxation Committee who is known as one of the most fiscally conservative legislators currently in office, agreed.

“I don’t have a problem with our sales tax rate,” said Thomas, an outspoken critic of tax increases. “I dislike the income tax and property tax much more than the sales tax. I wish we would allow people to put a roof over their head and food on their table before we decide to tax them.”

Sen. Anne Haskell, D-Portland, who co-chaired the Taxation Committee until she was named assistant Senate majority leader last month, said that in addition to spurring economic development, an expansion of the sales tax would take pressure off the income and property taxes and stabilize overall tax revenue in Maine — so deep and painful cuts in social services wouldn’t happen every time the economy tanks.

“Tax reform is always a tough sell,” she said. “There’s always someone who feels as though they are going to be harmed by whatever we’re considering. They look at it through their own personal lens, but we can’t do that. We need to look at the bigger picture.”

Rep. Adam Goode, D-Bangor, the House chairman of the Taxation Committee, agreed that Maine badly needs tax reform.

“We have a tax code that made sense several generations ago,” he said.

Alaska, Delaware, Montana, New Hampshire and Oregon do not have statewide tax rates, though Alaska and Montana allow municipalities to charge their own sales taxes. According to the Tax Foundation’s study, the highest combined sales tax rates in the country are in Tennessee, Arkansas, Louisiana, Washington and Oklahoma, where the rates range from 8.72 percent to 9.44 percent.

Despite the Tax Foundation’s high marks on Maine’s sales tax, it ranks the state as having an above-average income tax burden, the eighth-highest nationwide.

In another measure of tax burden, the foundation estimated that “Tax Freedom Day” in Maine is April 8, the 13th earliest in the country. That means Maine taxpayers work until April 8 to pay off their total tax bill. By comparison, Tax Freedom Day in New Hampshire is April 15 (20th latest nationally); Massachusetts, April 24 (fourth latest nationally).

“Of course, sales taxes are just one part of an overall tax structure and should be considered in context,” said Scott Drenkard, an economist for the Tax Foundation, in a press release. “While many factors influence business location and investment decisions, sales taxes are something within policymakers’ control that can have immediate impacts.”

But Katz said he doesn’t see that happening until 2015 at the earliest because both political parties fear that their efforts at tax reform could be used against them in the 2014 legislative elections. Democrats will accuse Republicans of making dangerous cuts to revenue while Republicans will brand Democrats as wanting to increase taxes — even though in a revenue-neutral reform proposal like the one attempted this year, neither is true. But that doesn’t change the fact that it needs to happen, he said.

“If anyone can make a coherent argument in favor of the status quo, I’d like to hear it,” he said.

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